Learn How to Get a Pension

Having a pension is good for your retirement.

As you plan for retirement, you may want to figure out how to get a pension. I've known many doctors who had a private practice and then began working for the state their last ten years in the workforce so that they could qualify for a pension. It was a smart move on their part. There are essentially two ways to get a pension. Find an employer who offers one, or figure out a way to create your own. Both are covered below.

What a Pension Is

A pension is a source of guaranteed retirement income provided by an employer to employees who have qualified for this benefit. To be eligible for a pension benefit you must work for the company for the required number of years. Your pension benefit usually increases as you accumulate additional years of employment with that employer. Pensions are also referred to as “defined benefit retirement plans” as they are designed to define the future retirement benefit that you receive.

How to Get a Pension

To get a pension, you can seek employment with a company or entity that offers pension benefits and then work there long enough to become eligible for these benefits. Government jobs, both at the federal and state level, offer pension benefits. Some examples would be military, police and fire departments. Large corporate employers may also offer pension benefits, but it is not as common as it was 30 years ago. In fact, recent studies found that only 4% of employees rely solely on a pension as their sole retirement compared to 60% in the early 1980s.

Ask a prospective employer if they offer a pension and what you need to do to become eligible for it. 401(k) benefits are not the same as a pension. With a 401(k) you must contribute your own money to the plan, and the employer will often make a matching contribution, and/or a profit sharing contribution. With a 401(k) plan, you are responsible for the decisions about the money inside the plan. If your employer offers a 401(k), but not a pension, one possibility is to use your 401(k) money to create your own pension benefit when you retire.

Make Your Own Pension

At the point you retire, you can use your own savings, such as money in a 401(k) plan or IRA, or savings that is not in a retirement plan, and buy an immediate annuity, which would pay you a guaranteed income for the rest of your life. In this way, you will have created your own pension.

Delaying the start date of when you begin your Social Security benefits can also be a way for you to create a larger stream of retirement income for yourself. For example, if you retired at 66, you could use savings to buy an annuity that provided guaranteed income for four years, and then at 70 begin your Social Security benefits, which would pay out a much larger amount at 70 than if you began taking them at 66. You aren't getting paid more money from Social Security--your checks are higher because your contributions had more time to grow and you waited longer to start receiving income so there's more money to pay out in less time.

Pensions and Your Spouse

Whether you get a pension through an employer or create your own, if you are married, consider your spouse when you make pension choices. Pensions can be chosen to payout a benefit for your life only, or you can choose a joint/survivor option, which will pay out a monthly amount for as long as either of you should live.

Finally...

There are a lot of options available to you as you plan your retirement. A pension is only one of those options. The goal is to save enough that you can take advantage of the financial opportunities available to you. That's where a financial planner can help.